ECB unveils sovereign QE to counter disinflation

Facing persistent disinflation and weak growth, the ECB introduced the Public Sector Purchase Programme, complementing existing private asset buys. Bund yields fell, spreads tightened initially, and the euro depreciated as policy divergence with the U.S. widened. Market‑implied inflation expectations inched up from lows.

Implementation details on risk sharing, issuer limits, and capital key allocations shaped relative value. Semi‑core sovereigns and high‑quality supranationals offered incremental yield without meaningfully higher risk, while periphery compression was bounded by political and reform uncertainties. European equities responded to the weaker euro backdrop.

Banks grappled with NIM pressure but gained capital relief via lower sovereign risk weights. Corporate borrowers accelerated issuance to lock in historically low coupons, lengthening maturities. Investors debated the durability of QE effects on term premia versus structural growth headwinds.

We extended duration in euro core and semi‑core, added select IG corporates, and increased FX hedges for non‑euro holdings. Equity portfolios tilted toward exporters and quality cyclicals. We kept dry powder to add into volatility around Greek negotiations and later policy recalibrations.